The following discussion relates to Apache Corporation (Apache or the Company)
and its consolidated subsidiaries and should be read together in conjunction
with the Company's Consolidated Financial Statements and accompanying notes
included in Part IV, Item 15 of this Annual Report on Form 10-K, and the risk
factors and related information set forth in Part I, Item 1A and Part II,
Item 7A of this Annual Report on Form 10-K. This section of this Annual Report
on Form 10-K generally discusses 2020 and 2019 items and year-to-year
comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year
comparisons between 2019 and 2018 that are not included in this Annual Report on
Form 10-K are incorporated by reference to "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in Part II, Item 7 of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019
(filed with the SEC on February 28, 2020).
Overview
Apache Corporation, a Delaware corporation formed in 1954, is an independent
energy company that explores for, develops, and produces natural gas, crude oil,
and NGLs. The Company's upstream business currently has exploration and
production operations in three geographic areas: the U.S., Egypt, and offshore
the U.K. in the North Sea (North Sea). Apache also has active exploration and
planned appraisal operations ongoing in Suriname, as well as interests in other
international locations that may, over time, result in reportable discoveries
and development opportunities. Apache's midstream business is operated by Altus
Midstream Company (Nasdaq: ALTM) through its subsidiary Altus Midstream LP
(collectively, Altus). Altus owns, develops, and operates a midstream energy
asset network in the Permian Basin of West Texas.
Apache's mission is to grow in an innovative, safe, environmentally responsible,
and profitable manner for the long-term benefit of its stakeholders. Apache is
focused on rigorous portfolio management, disciplined financial structure, and
optimization of returns.
The global economy and the energy industry have been deeply impacted by the
effects of the COVID-19 pandemic and related third-party actions. Uncertainty in
the oil markets and the negative demand implications from the COVID-19 pandemic
continue to impact oil supply and demand. As with previous changes in a volatile
price environment, Apache has continued to respond quickly and decisively,
taking the following actions:
•Establishing and implementing a wide range of fit-for-purpose protocols and
procedures to ensure a safe and productive work environment across the Company's
diversified global onshore and offshore operations.
•Reducing upstream capital investments by over 50 percent from the comparative
prior-year period, including eliminating nearly all U.S. drilling and completion
activity by May 2020 and reducing planned activity in Egypt and the North Sea.
•Decreasing the Company's dividend by 90 percent beginning in the first quarter
of 2020, preserving approximately $340 million of cash flow on an annualized
basis and strengthening liquidity.
•Completing an organizational redesign focused on centralizing certain
operational activities in an effort to capture greater efficiencies, achieving
an estimated cost savings of $400 million annually.
•Conducting, on a continuous basis, price sensitivity analyses and operational
evaluations of producing wells across the Company's portfolio that allow for a
methodical and integrated approach to production shut-ins and curtailments with
a focus on preserving cash flows in a distressed price environment and
protecting the Company's assets.
The Company remains committed to its longer-term objectives: (1) to maintain a
balanced asset portfolio, including advancement of ongoing exploration and
appraisal activities offshore Suriname; (2) to invest for long-term returns over
production growth; and (3) to budget conservatively to generate excess cash flow
that can be directed on a priority basis to debt reduction. The Company closely
monitors hydrocarbon pricing fundamentals and will reallocate capital as part of
its ongoing planning process. For additional detail on the Company's forward
capital investment outlook, refer to "Capital and Operational Outlook" below.
                                       33
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During 2020, Apache reported a net loss attributable to common stock of $4.9
billion, or $12.86 per share, compared to a net loss of $3.6 billion, or $9.43
per share, in 2019. The results for both periods were driven by asset
impairments. In 2020, the Company recorded impairments totaling $4.5 billion in
connection with fair value assessments stemming from the global crude oil price
collapse on lower demand and economic activity resulting from the impacts of
COVID-19 and related third-party actions. The Company recorded asset impairments
during 2019 of $2.9 billion, primarily related to a material reduction in
planned investment at Apache's Alpine High development that triggered fair value
assessments of the Company's upstream Alpine High proved properties and Altus'
associated midstream assets.
Apache's capital spending for the year aligned with its $1.4 billion of cash
from operating activities generated in 2020, which was $1.5 billion or 52
percent lower than the prior year. Apache's lower operating cash flows for 2020
were driven by lower crude oil prices and associated revenues. The reduced
capital investment was the result of proactive measures taken by the Company to
adjust its capital budget to reflect volatile commodity prices and anticipated
operating cash flows. Apache ended the year with a slightly higher cash balance
of $262 million and comparable debt levels to the prior year-end, while actively
managing its debt positions to reduce near-term debt maturities.
Operational Highlights
Key operational highlights for the year include:
United States
•Equivalent production from the Company's U.S. assets, which accounted for 58
percent of total production during 2020, decreased nine percent from 2019 to
2020 as a result of reduced activity in response to commodity price weakness.
•The Company began 2020 with seven operated drilling rigs and three operated
completion crews in the Permian Basin, which were both quickly and safely
reduced to zero by May 2020 in response to commodity price weakness.
•In response to completion cost reductions when compared to the first quarter of
2020, the Company reinstated two operated completion crews in the Permian Basin
during the fourth quarter of 2020 to begin completing its backlog of drilled but
uncompleted well inventory.
International
•Egypt gross equivalent production decreased 13 percent and net production
decreased 9 percent from 2019 primarily a result of natural decline given
reduced drilling activity during the year. The Company continues to build and
enhance its robust drilling inventory in Egypt, supplemented with recent seismic
acquisitions and new play concept evaluations, on both new and existing acreage.
As a result, the Egypt asset achieved a new record within the Matruh Basin with
the Herunefer E-2 well, which encountered 555 feet of net pay.
•The North Sea maintained two drilling rigs during 2020 with notable discoveries
at the Storr and Garten fields contributing to the two percent increase in
production from 2019 to 2020. In addition, during the fourth quarter of 2020,
the Company's Losgann well confirmed a Tertiary oil discovery, offsetting other
operator Norwegian discoveries in the area. In combination with two previous
undeveloped Apache discoveries in the Tertiary, Losgann will add to a
comprehensive development opportunity.
•In April 2020, Apache announced a significant oil discovery at the Sapakara
West-1 well drilled offshore Suriname on Block 58. Sapakara West-1 was drilled
to a depth of approximately 6,300 meters (approximately 20,700 feet) and
successfully tested for the presence of hydrocarbons in multiple stacked targets
in the upper Cretaceous-aged Campanian and Santonian intervals. This follows the
January 2020 announcement of a discovery at the Maka Central-1 well. During
2020, the Company submitted a plan of appraisal for both of these discoveries.
Apache holds a 50 percent working interest in Block 58.
•In July 2020, Apache announced a major oil discovery at the Kwaskwasi-1 well
drilled offshore Suriname on Block 58. Kwaskwasi-1 was drilled to a depth of
approximately 6,645 meters (approximately 21,800 feet) and successfully tested
for the presence of hydrocarbons in multiple stacked targets in the upper
Cretaceous-aged Campanian and Santonian intervals. Fluid samples and test
results indicate at least 278 meters (approximately 912 feet) of net oil and
oil/gas condensate pay in two intervals. This was the third consecutive oil
discovery offshore Suriname.
                                       34
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•In late 2020, the Company commenced drilling a fourth exploration well in the
block at the Keskesi prospect. In January 2021, Apache and Total S.A announced a
discovery that confirmed oil in the eastern portion of the block. The Keskesi
East-1 well is continuing to drill to deeper targets. Apache is transferring
operatorship of Block 58 to its partner, Total S.A, which will conduct all
exploration and appraisal activities subsequent to completion of drilling
operations at Keskesi.
For a more detailed discussion related to the Company's various geographic
segments, refer to "Upstream Exploration and Production Properties-Operating
Areas" set forth in Part I, Item 1 and 2 of this Annual Report on Form 10-K.
Acquisition and Divestiture Activity
Over Apache's history, the Company has repeatedly demonstrated its ability to
capitalize quickly and decisively on changes in its industry and economic
conditions. A key component of this strategy is to continuously review and
optimize Apache's portfolio of assets in response to these changes. Most
recently, Apache has completed a series of divestitures designed to monetize
nonstrategic assets and enhance Apache's portfolio in order to allocate
resources to more impactful exploration and development opportunities. These
divestitures include:
•U.S. Leasehold Divestitures & Other During 2020, the Company completed the sale
of certain non-core producing assets and leasehold acreage, primarily in the
Permian Basin, in multiple transactions for total cash proceeds of $87 million.
The Company also completed certain leasehold and property acquisitions,
primarily in the Permian Basin, for total cash consideration of $4 million.
•Suriname Joint Venture Agreement In December 2019, Apache entered into a joint
venture agreement with Total S.A. to explore and develop Block 58 offshore
Suriname. Under the terms of the agreement, Apache and Total S.A. each hold a 50
percent working interest in Block 58. Apache operated the drilling of the first
four wells and subsequently transferred operatorship of Block 58 to Total S.A.
In connection with the agreement, Apache received $100 million upon closing in
the fourth quarter of 2019 and $79 million upon satisfying certain closing
conditions in the first quarter of 2020 for reimbursement of 50 percent of all
costs incurred on Block 58 as of December 31, 2019.
Apache will also receive various other forms of consideration, including $5.0
billion of cash carry on Apache's first $7.5 billion of appraisal and
development capital, 25 percent cash carry on all of Apache's appraisal and
development capital beyond the first $7.5 billion, a $75 million cash payment
upon achieving first oil production, and future contingent royalty payments from
successful joint development projects.
•Midcontinent/Gulf Coast Divestiture In the second quarter of 2019, Apache
completed the sale of non-core, gas-weighted assets in the Woodford-SCOOP and
STACK plays for aggregate cash proceeds of approximately $223 million. In the
third quarter of 2019, Apache completed the sale of non-core, gas-weighted
assets in the western Anadarko Basin of Oklahoma and Texas for aggregate cash
proceeds of approximately $322 million and the assumption of asset retirement
obligations of $49 million.
•U.S. Leasehold Divestitures & Other During 2019, the Company also completed the
sale of certain other non-core producing assets, gathering, processing, and
transmission (GPT) assets, and leasehold acreage, primarily in the Permian
Basin, in multiple transactions for total cash proceeds of $73 million.
For detailed information regarding Apache's acquisitions and divestitures, refer
to   Note 2-Acquisitions and Divestitures   in the Notes to Consolidated
Financial Statements set forth in Part IV, Item 15 of this Annual Report on Form
10-K.
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Results of Operations
Oil and Gas Production Revenues
Apache's oil and gas production revenues and respective contribution to total
revenues by country are as follows:
                                                                                         For the Year Ended December 31,
                                                       2020                                             2019                                           2018
                                       $ Value              % Contribution             $ Value             % Contribution             $ Value             % Contribution
                                                                                                 ($ in millions)
Oil Revenues:
United States                       $    1,209                            39  %       $ 2,098                            40  %       $ 2,271                            39  %
Egypt(1)                                 1,102                            35  %         1,969                            38  %         2,396                            41  %
North Sea                                  795                            26  %         1,163                            22  %         1,179                            20  %
Total(1)                            $    3,106                           100  %       $ 5,230                           100  %       $ 5,846                           100  %

Natural Gas Revenues:
United States                       $      251                            42  %       $   293                            43  %       $   458                            50  %
Egypt(1)                                   280                            47  %           295                            44  %           339                            37  %
North Sea                                   67                            11  %            90                            13  %           122                            13  %
Total(1)                            $      598                           100  %       $   678                           100  %       $   919                           100  %

NGL Revenues:
United States                       $      304                            91  %       $   372                            91  %       $   550                            94  %
Egypt(1)                                     8                             3  %            12                             3  %            13                             2  %
North Sea                                   21                             6  %            23                             6  %            20                             4  %
Total(1)                            $      333                           100  %       $   407                           100  %       $   583                           100  %

Oil and Gas Revenues:
United States                       $    1,764                            44  %       $ 2,763                            44  %       $ 3,279                            45  %
Egypt(1)                                 1,390                            34  %         2,276                            36  %         2,748                            37  %
North Sea                                  883                            22  %         1,276                            20  %         1,321                            18  %
Total(1)                            $    4,037                           100  %       $ 6,315                           100  %       $ 7,348                           100  %

(1)Includes revenues attributable to a noncontrolling interest in Egypt.


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Production

The following table presents production volumes by country:

For the Year Ended December 31,


                                                                        Increase                                         Increase
                                                2020                   (Decrease)                  2019                 (Decrease)                2018
Oil Volumes - b/d:
United States                                   88,249                   (16)%                    105,051                    -                   104,800
Egypt(1)(2)                                     75,384                   (11)%                     84,617                  (10)%                  93,656
North Sea                                       50,386                     1%                      49,746                   6%                    46,953
Total                                          214,019                   (11)%                    239,414                  (2)%                  245,409

Natural Gas Volumes - Mcf/d:
United States                                  561,731                   (12)%                    639,580                   8%                   593,254
Egypt(1)(2)                                    274,175                    (4)%                    285,972                  (12)%                 326,811
North Sea                                       57,464                     5%                      54,642                   20%                   45,466
Total                                          893,370                    (9)%                    980,194                   2%                   965,531

NGL Volumes - b/d:
United States                                   74,136                     8%                      68,381                   19%                   57,451
Egypt(1)(2)                                        754                   (19)%                        931                   1%                       923
North Sea                                        1,936                    11%                       1,739                   46%                    1,189
Total                                           76,826                     8%                      71,051                   19%                   59,563

BOE per day:(3)
United States                                  256,007                    (9)%                    280,029                   7%                   261,126
Egypt(1)(2)                                    121,834                    (9)%                    133,209                  (11)%                 149,048
North Sea(4)                                    61,899                     2%                      60,592                   9%                    55,719
Total                                          439,740                    (7)%                    473,830                   2%                   465,893

(1)Gross oil, natural gas, and NGL production in Egypt were as follows:


                              2020                2019                2018
Oil (b/d)                   164,104             193,886             206,378
Natural Gas (Mcf/d)         641,069             708,682             769,468
NGL (b/d)                     1,429               1,722               1,502


(2)Includes net production volumes per day attributable to a noncontrolling
interest in Egypt of:
                              2020                2019                2018
Oil (b/d)                    25,206              28,220              31,240
Natural Gas (Mcf/d)          91,540              95,539             109,169
NGL (b/d)                       251                 310                 308


(3)The table shows production on a boe basis in which natural gas is converted
to an equivalent barrel of oil based on a 6:1 energy equivalent ratio. This
ratio is not reflective of the price ratio between the two products.
(4)Average sales volumes from the North Sea were 62,157 boe/d, 59,797 boe/d, and
55,568 boe/d for 2020, 2019, and 2018, respectively. Sales volumes may vary from
production volumes as a result of the timing of liftings in the Beryl field.
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Pricing

The following table presents pricing information by country:


                                                                       For 

the Year Ended December 31,


                                                               Increase                                  Increase
                                           2020               (Decrease)              2019              (Decrease)              2018
Average Oil Price - Per barrel:
United States                         $     37.42                (32)%             $  54.71                (8)%              $  59.36
Egypt                                       39.95                (37)%                63.76                (9)%                 70.09
North Sea                                   42.88                (34)%                65.10                (6)%                 69.02
Total                                       39.60                (34)%                60.05                (8)%                 65.30

Average Natural Gas Price - Per
Mcf:
United States                         $      1.22                (3)%              $   1.26                (41)%             $   2.12
Egypt                                        2.79                (1)%                  2.83                  -                   2.84
North Sea                                    3.19                (29)%                 4.48                (39)%                 7.33
Total                                        1.83                (4)%                  1.90                (27)%                 2.61

Average NGL Price - Per barrel:
United States                         $     11.21                (25)%             $  14.95                (43)%             $  26.28
Egypt                                       27.83                (18)%                33.87                (14)%                39.17
North Sea                                   29.73                (19)%                36.83                (20)%                45.84
Total                                       11.84                (25)%                15.74                (41)%                26.87


Crude Oil Prices A substantial portion of our crude oil production is sold at
prevailing market prices, which fluctuate in response to many factors that are
outside of the Company's control. Average realized crude oil prices for 2020
were down 34 percent compared to 2019, a direct result of the decreasing
benchmark oil prices over the past year resulting from the COVID-19 pandemic and
related third-party actions. Crude oil prices realized in 2020 averaged $39.60
per barrel.
Continued volatility in the commodity price environment reinforces the
importance of the Company's asset portfolio. While the market price received for
natural gas varies among geographic areas, crude oil tends to trade within a
global market. Price movements for all types and grades of crude oil generally
move in the same direction.
Natural Gas Prices Natural gas, which currently has a limited global
transportation system, is subject to price variances based on local supply and
demand conditions. Apache's primary markets include North America, Egypt, and
the U.K. An overview of the market conditions in the Company's primary
gas-producing regions follows:
•The Company predominantly sells its natural gas production within the United
States, including to U.S. LNG export facilities, although a portion is sold to
markets in Mexico. Most of the Company's U.S. natural gas is sold on a monthly
or daily basis at either monthly or daily index-based prices. The Company's U.S.
realizations averaged $1.22 per Mcf in 2020, down from $1.26 per Mcf in 2019.
•In Egypt, the Company's natural gas is sold to Egyptian General Petroleum
Corporation (EGPC), primarily under an industry-pricing formula, a sliding scale
based on Dated Brent crude oil with a minimum of $1.50 per MMBtu and a maximum
of $2.65 per MMBtu, plus an upward adjustment for liquids content. Overall, the
Company's Egypt operations averaged $2.79 per Mcf in 2020, a 1 percent decrease
from 2019.
•Natural gas from the North Sea Beryl field is processed through the SAGE gas
plant. The gas is sold to a third party at the St. Fergus entry point of the
national grid on a National Balancing Point index price basis. The Company's
North Sea operations averaged $3.19 per Mcf in 2020, a 29 percent decrease from
an average of $4.48 per Mcf in 2019.
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NGL Prices Apache's U.S. NGL production, which accounts for 96 percent of the
Company's total 2020 NGL production, is sold under contracts with prices at
market indices based on Gulf Coast supply and demand conditions, less the costs
for transportation and fractionation, or on a weighted-average sales price
received by the purchaser.
Crude Oil Revenues
Crude oil revenues for 2020 totaled $3.1 billion, a $2.1 billion decrease from
the 2019 total of $5.2 billion. A 34 percent decrease in average realized prices
reduced 2020 revenues by $1.8 billion compared to 2019, while 11 percent lower
average daily production decreased revenues by $343 million. Average daily
production in 2020 was 214 Mb/d, with prices averaging $39.60 per barrel. Crude
oil sales accounted for 77 percent of the Company's 2020 oil and gas production
revenues and 49 percent of its worldwide production.
The Company's worldwide crude oil production decreased 25 Mb/d compared to 2019,
primarily driven by natural decline in the U.S. and Egypt, a result of reduced
activity in response to commodity price weakness. Production decreases for 2020
were partially offset by the Storr and Garten exploration discoveries in the
North Sea coming on-line in late 2019 and early 2020, respectively.
Natural Gas Revenues
Natural gas revenues for 2020 totaled $598 million, an $80 million decrease from
the 2019 total of $678 million. A 4 percent decrease in average realized prices
reduced 2020 revenues by $24 million compared to 2019, while 9 percent lower
average daily production decreased revenues by $56 million. Average daily
production in 2020 was 893 MMcf/d, with prices averaging $1.83 per Mcf. Natural
gas sales accounted for 15 percent of the Company's 2020 oil and gas production
revenues and 34 percent of its worldwide production.
The Company's worldwide natural gas production decreased 87 MMcf/d compared to
2019, primarily a result of the sale of the Company's Woodford-SCOOP and STACK
plays and western Anadarko Basin assets in the U.S. in 2019 and natural decline
in the U.S. and Egypt resulting from reduced activity levels.
NGL Revenues
NGL revenues for 2020 totaled $333 million, a $74 million decrease from the 2019
total of $407 million. A 25 percent decrease in average realized prices reduced
2020 revenues by $101 million compared to 2019, while 8 percent higher average
daily production increased revenues by $27 million. Average daily production in
2020 was 77 Mb/d, with prices averaging $11.84 per barrel. NGL sales accounted
for 8 percent of Apache's 2020 oil and gas production revenues and 17 percent of
its worldwide production.
The Company's worldwide NGL production increased 6 Mb/d compared to 2019,
primarily a result of the Alpine High development in recent years.
Altus Midstream Revenues
Apache beneficially owns approximately 79 percent of Altus' outstanding voting
common stock. Altus owns and operates a midstream energy asset network in the
Permian Basin of West Texas primarily to service Apache's production from its
Alpine High resource play, which commenced production in May 2017.
Altus Midstream generates revenue by providing fee-based natural gas gathering,
compression, processing, and transmission services. For the years ended
December 31, 2020 and 2019, Altus Midstream's services revenues generated
through its fee-based contractual arrangements with Apache totaled $145 million
and $136 million, respectively. These affiliated revenues are eliminated upon
consolidation. The increase compared to the prior year was primarily driven by
higher throughput of rich natural gas volumes at Alpine High due to increased
capacity as a result of three cryogenic processing trains coming on line
starting in the second quarter of 2019, partially offset by lower throughput of
lean natural gas volumes.
Purchased Oil and Gas Sales
Purchased oil and gas sales increased $222 million for the year ended
December 31, 2020 from $176 million to $398 million. Purchased oil and gas sales
were primarily offset by associated purchase costs of $357 million and $142
million for the years ended December 31, 2020 and 2019, respectively.
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Operating Expenses
The table below presents a comparison of the Company's operating expenses for
the years ended December 31, 2020, 2019, and 2018. All operating expenses
include costs attributable to a noncontrolling interest in Egypt and Altus.
                                                                            

For the Year Ended December 31,


                                                                      2020                2019               2018
                                                                                     (In millions)
Lease operating expenses                                         $     1,127          $   1,447          $    1,439
Gathering, processing, and transmission                                  274                306                 348
Purchased oil and gas costs                                              357                142                 340
Taxes other than income                                                  123                207                 215
Exploration                                                              274                805                 503
General and administrative                                               290                406                 431
Transaction, reorganization, and separation                               54                 50                  28
Depreciation, depletion, and amortization:
Oil and gas property and equipment                                     1,643              2,512               2,265
Gathering, processing, and transmission assets                            76                105                  83
Other assets                                                              53                 63                  57
Asset retirement obligation accretion                                    109                107                 108
Impairments                                                            4,501              2,949                 511
Financing costs, net                                                     267                462                 478


Lease Operating Expenses (LOE)
LOE includes several key components, such as direct operating costs, repairs and
maintenance, and workover costs. Direct operating costs generally trend with
commodity prices and are impacted by the type of commodity produced and the
location of properties (i.e., offshore, onshore, remote locations, etc.).
Fluctuations in commodity prices impact operating cost elements both directly
and indirectly. They directly impact costs such as power, fuel, and chemicals,
which are commodity price based. Commodity prices also affect industry activity
and demand, thus indirectly impacting the cost of items such as rig rates,
labor, boats, helicopters, materials, and supplies. Crude oil, which accounted
for 49 percent of the Company's total 2020 production, is inherently more
expensive to produce than natural gas. Repair and maintenance costs are
typically higher on offshore properties.
During 2020, LOE decreased $320 million, or 22 percent, compared to 2019. On a
per-boe basis, LOE decreased $1.38, or 16 percent, compared to 2019, from $8.38
per boe to $7.00 per boe, driven by reduced activity, labor costs, and fuel
costs associated with lower commodity prices, the Company's organizational
redesign, and other cost cutting efforts. In addition, absolute dollar costs are
lower in the current year as a result of the divestitures of the Company's
Woodford-SCOOP and STACK plays and western Anadarko Basin assets in the U.S. in
the third quarter of 2019.
Gathering, Processing, and Transmission (GPT)
GPT expenses include amounts paid to third-party carriers and to Altus Midstream
for gathering and transmission services for Apache's upstream natural gas
production associated with its Alpine High play. GPT expenses also include
midstream operating costs incurred by Altus Midstream. The following table
presents a summary of these expenses:
                                                                    For the Year Ended December 31,
                                                              2020                 2019               2018
                                                                             (In millions)
Third-party processing and transmission costs            $        236          $     250          $      294
Midstream service affiliate costs                                 143                134                  77
Upstream processing and transmission costs                        379                384                 371
Midstream operating expenses                                       38                 56                  54
Intersegment eliminations                                        (143)              (134)                (77)
Total Gathering, processing, and transmission            $        274

$ 306 $ 348


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GPT costs decreased $32 million compared to 2019. Third-party processing and
transmission costs decreased $14 million, primarily driven by a decrease in
contracted pricing and the Company's sale of non-core assets in Oklahoma and
Texas. Midstream service affiliate costs increased $9 million compared to 2019,
primarily driven by higher throughput of rich natural gas volumes at Alpine
High. Midstream operating expenses, incurred primarily by Altus, decreased
$18 million compared to 2019, primarily driven by increased operational
efficiency as a result of transitioning from mechanical refrigeration units to
Altus' centralized Diamond cryogenic complex starting in the second quarter of
2019. The transition resulted in decreases in employee-related costs, contract
labor, supplies expenses, and equipment rentals.
Purchased Oil and Gas Costs
Purchased oil and gas costs increased $215 million compared to 2019, and were
more than offset by associated sales totaling $398 million for the year ended
2020.
Taxes Other Than Income
Taxes other than income primarily consist of severance taxes on onshore
properties and in state waters off the coast of the U.S. and ad valorem taxes on
U.S. properties. Severance taxes are generally based on a percentage of oil and
gas production revenues. The Company is also subject to a variety of other
taxes, including U.S. franchise taxes.
Taxes other than income decreased $84 million compared to 2019, primarily from
lower severance taxes driven by lower commodity prices and the divestiture of
the Company's non-core assets in Oklahoma and Texas.
Exploration Expenses
Exploration expenses include unproved leasehold impairments, exploration dry
hole expense, geological and geophysical expenses, and the costs of maintaining
and retaining unproved leasehold properties. The following table presents a
summary of these expenses:
                                                       For the Year Ended December 31,
                                                          2020                  2019       2018
                                                                (In millions)

   Unproved leasehold impairments            $        101                      $ 619      $ 214
   Dry hole expenses                                  110                         57        137
   Geological and geophysical expenses                 20                         59         55
   Exploration overhead and other                      43                         70         97
   Total Exploration                         $        274                      $ 805      $ 503


Exploration expenses decreased $531 million compared to 2019. Unproved leasehold
impairments decreased $518 million, driven by higher leasehold impairments in
2019 associated with the Company's decision to reallocate capital away from
planned investment in the Alpine High play. Dry hole expense increased $53
million compared to 2019, primarily related to exploration wells in the U.S.,
Egypt, and the North Sea. Geological and geophysical expenses decreased $39
million and exploration overhead and other expenses decreased $27 million. The
2019 period reflects large-scale seismic surveys in Egypt and higher delay
rentals in the U.S.
General and Administrative (G&A) Expenses
G&A expenses decreased $116 million compared to 2019, primarily related to
cost-cutting measures associated with the Company's organizational redesign
efforts, as well as lower cash-based stock compensation expense resulting from a
decrease in the Company's stock price and a reduced payout of performance
awards.
Transaction, Reorganization, and Separation (TRS) Costs
TRS costs increased $4 million compared to 2019, driven by costs associated with
the Company's reorganization efforts initiated in the second half of 2019.
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In recent years, the Company has streamlined its portfolio through strategic
divestitures and centralized certain operational activities in an effort to
capture greater efficiencies and cost savings through shared services. During
the second half of 2019, management initiated a comprehensive redesign of
Apache's organizational structure and operations that it believes will better
position the Company to be competitive for the long-term and further reduce
recurring costs. Reorganization efforts were substantially completed in 2020,
and as a result of the reorganization, Apache has achieved an estimated cost
savings of more than $400 million annually.
Depreciation, Depletion and Amortization (DD&A)
DD&A expenses on the Company's oil and gas property for the year ended
December 31, 2020, decreased $869 million compared to 2019. The Company's oil
and gas property DD&A rate decreased $4.35 per boe in 2020 compared to 2019,
from $14.55 per boe to $10.20 per boe. The decrease was driven by lower
production volumes and lower asset property balances associated with proved
property impairments recorded in the first quarter of 2020 and in the fourth
quarter of 2019. DD&A expense on the Company's GPT depreciation decreased $29
million compared to 2019, driven by impairment charges recorded against the
carrying value of Altus' GPT facilities in the fourth quarter of 2019.
Impairments
During 2020, the Company recorded asset impairments in connection with fair
value assessments totaling $4.5 billion, including $4.3 billion for oil and gas
proved properties in the U.S, Egypt, and the North Sea, $68 million for GPT
facilities in Egypt, $87 million for goodwill in Egypt, and $27 million for
inventory and other miscellaneous assets, including lease assets and charges for
the early termination of drilling rig leases.
During 2019, the Company recorded asset impairments totaling $2.9 billion in
connection with fair value assessments, including $1.5 billion for oil and gas
proved properties in the U.S. primarily in Alpine High, $1.3 billion impairment
of GPT facilities primarily in the Altus Midstream reporting segment, $149
million on divested unproved properties and leasehold acreage in the western
Anadarko Basin in Oklahoma and Texas, and $21 million of inventory and other
miscellaneous assets, including office leasehold impairments from Apache's
announcement to close its San Antonio regional office. The impairments for
Alpine High and Altus Midstream were associated with the Company's fourth
quarter 2019 capital plan allocation decision to materially reduce planned
investment in the Alpine High play.
The following table presents a summary of asset impairments recorded for 2020,
2019, and 2018:
                                                          For the Year Ended December 31,
                                                            2020                 2019        2018
                                                                   (In millions)
 Oil and gas proved property                     $      4,319                  $ 1,484      $ 328
 GPT facilities                                            68                    1,295         56
 Equity method investment                                   -                        -        113
 Divested unproved properties and leasehold                 -                      149         10
 Goodwill                                                  87                        -          -
 Inventory and other                                       27                       21          4
 Total Impairments                               $      4,501                  $ 2,949      $ 511


Financing Costs, Net
Financing costs incurred during the period comprised the following:
                                                     For the Year Ended December 31,
                                                        2020                  2019       2018
                                                              (In millions)
Interest expense                           $        438                      $ 430      $ 441
Amortization of debt issuance costs                   8                          7          9
Capitalized interest                                (12)                       (37)       (44)
Loss (gain) on extinguishment of debt              (160)                        75         94
Interest income                                      (7)                       (13)       (22)
Total Financing costs, net                 $        267                      $ 462      $ 478


                                       42

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Net financing costs decreased $195 million compared to 2019, primarily the
result of a $160 million gain on extinguishment of debt during 2020 compared to
a $75 million loss on extinguishment of debt during 2019. In addition,
capitalized interest decreased in the current year as a result of lower drilling
activity and construction activity at Alpine High.
Provision for Income Taxes
Income tax expense decreased $610 million from $674 million during 2019 to $64
million during 2020. The Company's year-to-date 2020 effective income tax rate
was primarily impacted by oil and gas asset impairments, a goodwill impairment,
and an increase in the amount of valuation allowance against its U.S. deferred
tax assets. The Company's year-to-date 2019 effective income tax rate was
primarily impacted by an increase in the amount of valuation allowance against
its U.S. deferred tax assets.
The Company recorded a full valuation allowance against its U.S. net deferred
tax assets and will continue to maintain a full valuation allowance on its U.S.
net deferred tax assets until there is sufficient evidence to support the
reversal of all or some portion of this allowance. For additional information
regarding income taxes, refer to   Note 10-Income Taxes   in the Notes to
Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual
Report on Form 10-K.
Apache and its subsidiaries are subject to U.S. federal income tax as well as
income or capital taxes in various state and foreign jurisdictions. The
Company's tax reserves are related to tax years that may be subject to
examination by the relevant taxing authority. The Company is currently under
audit by the Internal Revenue Service (IRS) for the 2014-2017 tax years and is
also under audit in various states and foreign jurisdictions as part of its
normal course of business.
Capital and Operational Outlook
The Company continues to prudently manage its capital program against a volatile
price environment and the prolonged effects of the COVID-19 pandemic. In
response to the current crises, Apache's immediate course of action has been to
actively reduce its cost structure, protect its balance sheet, and manage
operations to preserve cash flow. The Company plans to maintain a conservative
investment approach into 2021, having announced an upstream capital program of
$1.1 billion. The program consists of approximately $900 million for development
activities and approximately $200 million for exploration, predominantly in
Suriname.
The 2021 capital program assumes an average WTI price of $45 per barrel and a
Henry Hub natural gas price of $3.00 per Mcf. In 2020, a higher percentage of
development capital was directed toward international projects that generate
better returns in a lower price environment. With the improvement in oil prices,
the Company is returning to a modest level of activity in the U.S. Under the
capital budget for 2021, activity includes:
•continuing to advance exploratory and appraisal programs in Suriname under the
terms of the Company's joint venture with Total S.A.;
•running one rig in the Permian Basin, with the expectation to add a second rig
in the middle of the year, while resuming completion activity for its previously
drilled but uncompleted well inventory in response to significantly lower
service costs;
•continuing to run a five rig drilling program in Egypt with the ability to
quickly flex spending as conditions warrant; and
•maintaining a capital program in the North Sea relatively unchanged from the
prior year with one floating rig and one platform crew.
The Company's proactive reduction in capital spending in 2020 directly impacted
global oil volumes which decreased by 17 percent from the fourth quarter of 2019
to the fourth quarter of 2020. Based on its 2021 upstream investment plan and
allocation, the Company is projecting a more moderate decline of one percent for
the comparable 2021 period. Forecasting into 2022 and future years, Apache's
goal is to establish a development capital investment budget that will, at a
minimum, at least sustain production volumes for the longer-term.
Apache's strategic approach and multi-year outlook prioritizes retaining cash
flow to reduce outstanding debt, focusing on long-term returns over short-term
growth, aggressively managing its cost structure, and advancing exploration and
appraisal activities in Suriname.
                                       43
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The Company's diversified global portfolio provides the ability to quickly
optimize capital allocation as market conditions change. The current crisis,
however, is still evolving and may become more severe and complex. As a result,
the COVID-19 pandemic may still materially and adversely affect Apache's results
in a manner that is either not currently known or that the Company does not
currently consider to be a significant risk to its business. For additional
information about the business risks relating to the COVID-19 pandemic and
related governmental actions, refer to Part I, Item 1A-Risk Factors of this
Annual Report on Form 10-K.
Separate from the Company's upstream oil and gas activities, capital spending
for Altus' gathering and processing assets totaled $28 million in 2020, down
from $327 million in 2019 when a majority of the midstream infrastructure
construction was completed. Altus management believes its existing gathering,
processing, and transmission infrastructure capacity is capable of fulfilling
its midstream contracts to service Apache's production from Alpine High and any
third-party customers. As such, remaining capital requirements for its existing
infrastructure assets during 2021 and 2022 are anticipated to be minimal.
Additionally, during the years ended December 31, 2020 and 2019, Altus made cash
contributions totaling $327 million and $501 million, respectively, for its
equity interests in the following Equity Method Interest Pipelines:
•16 percent in the Gulf Coast Express natural gas pipeline (GCX);
•15 percent in the EPIC crude pipeline (EPIC);
•an approximate 26.7 percent in the Permian Highway natural gas pipeline (PHP);
and
•33 percent in the Shin Oak NGL pipeline (Shin Oak).
Altus estimates it will incur approximately $30 million of additional capital
contributions during 2021 for its equity interest associated with the
commissioning and remaining construction costs in the Equity Method Interest
Pipelines, primarily associated with PHP. During 2020, Altus' primary sources of
cash were borrowings under the revolving credit facility, cash generated from
operations, distributions from the Equity Method Interest Pipelines, and
proceeds from the sale of assets. Based on Altus' current financial plan and
related assumptions, it believes that cash from operations, a reduced capital
program for its midstream infrastructure, and distributions from equity method
interests will generate cash flows significantly in excess of capital
expenditures that will provide sufficient cash to fund its planned dividend
program during 2021.
For further information on the Equity Method Interest Pipelines, refer to   Note
    6    -Equity Method Interests   in the Notes to Consolidated Financial
Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K.
Capital Resources and Liquidity
Operating cash flows are the Company's primary source of liquidity. Apache's
operating cash flows, both in the short-term and the long-term, are impacted by
highly volatile oil and natural gas prices, as well as costs and sales volumes.
Significant changes in commodity prices impact Apache's revenues, earnings and
cash flows. These changes potentially impact Apache's liquidity if costs do not
trend with changes in commodity prices. Historically, costs have trended with
commodity prices, albeit on a lag. Sales volumes also impact cash flows;
however, they have a less volatile impact in the short term.
Apache's long-term operating cash flows are dependent on reserve replacement and
the level of costs required for ongoing operations. Cash investments are
required to fund activity necessary to offset the inherent declines in
production and proved crude oil and natural gas reserves. Future success in
maintaining and growing reserves and production is highly dependent on the
success of Apache's drilling program and its ability to add reserves
economically. Changes in commodity prices also impact estimated quantities of
proved reserves. For the year ended December 31, 2020, Apache recognized
negative reserve revisions of approximately 7 percent of its year-end 2019
estimated proved reserves as a result of lower prices. The Company's estimates
of proved reserves, proved developed reserves, and PUD reserves as of December
31, 2020, 2019, and 2018, changes in estimated proved reserves during the last
three years, and estimates of future net cash flows from proved reserves are
contained in   Note 18-Supplemental Oil and Gas Disclosures     (Unaudited) 

in


the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of
this Annual Report on Form 10-K.
Combined with proactive measures to adjust its capital budget, decrease its
dividend, protect further downside price risk through entering into new hedge
positions, and reduce its operating cost structure in the current volatile
commodity price environment, Apache believes the liquidity and capital resource
alternatives available to the Company will be adequate to fund its operations
and provide flexibility until commodity prices and industry conditions improve.
This includes supporting the Company's capital development program, repayment of
debt maturities, payment of dividends, and any amount that may ultimately be
paid in connection with commitments and contingencies.
                                       44
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The Company may also elect to utilize available cash on hand, committed
borrowing capacity, access to both debt and equity capital markets, or proceeds
from the sale of nonstrategic assets for all other liquidity and capital
resource needs.
For additional information, please see   Part I, Items 1 and 2-Business and
Properties   and   Part I, Item 1A-Risk Factors   of this Annual Report on Form
10-K.
Sources and Uses of Cash
The following table presents the sources and uses of the Company's cash and cash
equivalents for the years presented:
                                                                                  For the Year Ended December 31,
                                                                               2020                     2019              2018
                                                                                            (In millions)
Sources of Cash and Cash Equivalents:
Net cash provided by operating activities                           $      1,388                     $  2,867          $  3,777
Proceeds from Apache credit facility, net                                    150                            -                 -
Proceeds from Altus credit facility, net                                     228                          396                 -
Proceeds from Altus transaction                                                -                            -               628
Proceeds from asset divestitures                                             166                          718               138
Fixed-rate debt borrowings                                                 1,238                          989               992
Redeemable noncontrolling interest - Altus Preferred Unit
limited partners                                                               -                          611                 -

                                                                           3,170                        5,581             5,535
Uses of Cash and Cash Equivalents:
Additions to oil and gas property(1)                                $      1,270                     $  2,594          $  3,190

Additions to Altus gathering, processing, and transmission facilities(1)

                                                                 28                          327               581
Leasehold and property acquisitions                                            4                           40               133
Contributions to Altus equity method interests                               327                          501                 -
Acquisition of Altus equity method interests                                   -                          671                91
Payments on fixed-rate debt                                                1,243                        1,150             1,370
Dividends paid                                                               123                          376               382
Distributions to noncontrolling interest - Egypt                              91                          305               345
Distributions to Altus Preferred Unit limited partners                        23                            -                 -
Shares repurchased                                                             -                            -               305
Other                                                                         46                           84                92
                                                                           3,155                        6,048             6,489
Increase (decrease) in cash and cash equivalents                    $         15                     $   (467)         $   (954)


(1)The table presents capital expenditures on a cash basis; therefore, the
amounts may differ from those discussed elsewhere in this Annual Report on Form
10-K, which include accruals.
Sources of Cash and Cash Equivalents
Net Cash Provided by Operating Activities Operating cash flows are the Company's
primary source of capital and liquidity and are impacted, both in the short term
and the long term, by volatile crude oil and natural gas prices. The factors
that determine operating cash flows are largely the same as those that affect
net earnings, with the exception of non-cash expenses such as DD&A, exploratory
dry hole expense, asset impairments, asset retirement obligation (ARO)
accretion, and deferred income tax expense.
Net cash provided by operating activities for the year ended December 31, 2020
totaled $1.4 billion, down $1.5 billion from the year ended December 31, 2019.
The decrease primarily reflects lower commodity prices compared to the prior
year.
For a detailed discussion of commodity prices, production, and operating
expenses, refer to "Results of Operations" in this Item 7. For additional detail
on the changes in operating assets and liabilities and the non-cash expenses
that do not impact net cash provided by operating activities, refer to the
Statement of Consolidated Cash Flows in the Consolidated Financial Statements
set forth in Part IV, Item 15 of this Annual Report on Form 10-K.
Proceeds from Apache Credit Facility, Net As of December 31, 2020, there were
$150 million of borrowings outstanding under Apache's credit facility, which is
classified as long-term debt. The Company had no borrowings under the revolver
as of December 31, 2019.
                                       45
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Proceeds from Altus Credit Facility, Net The initial construction of Altus'
gathering and processing assets and the exercise of its Pipeline Options for its
equity interests in the Equity Method Interest Pipelines has historically
required capital expenditures in excess of Altus' cash on hand and operational
cash flows. During the years ended December 31, 2020 and 2019, Altus Midstream
borrowed $228 million and $396 million, respectively, under its revolving credit
facility. With the initial midstream infrastructure construction complete and
each of Shin Oak, GCX, PHP, and EPIC now in service, the Company anticipates
that Altus' existing capital resources will be sufficient to fund its continuing
obligations and planned dividend program during 2021.
Proceeds from Asset Divestitures The Company recorded proceeds from non-core
asset divestitures totaling $166 million and $718 million for the years ended
December 31, 2020 and 2019, respectively. For more information regarding the
Company's acquisitions and divestitures, refer to   Note 2-Acquisitions and
Divestitures   in the Notes to Consolidated Financial Statements in Part IV set
forth in Part IV, Item 15 of this Annual Report on Form 10-K.
Fixed-Rate Debt Borrowings On August 17, 2020, the Company closed offerings of
$1.25 billion in aggregate principal amount of senior unsecured notes, comprised
of $500 million in aggregate principal amount of 4.625% notes due 2025 and $750
million in aggregate principal amount of 4.875% notes due 2027. The senior
unsecured notes are redeemable at any time, in whole or in part, at Apache's
option, at the applicable redemption price. The net proceeds from the sale of
the notes were used to purchase certain outstanding notes in cash tender offers,
repay a portion of outstanding borrowings under the Company's senior revolving
credit facility, and for general corporate purposes.
On June 19, 2019, Apache closed offerings of $1.0 billion in aggregate principal
amount of senior unsecured notes, comprised of $600 million in aggregate
principal amount of 4.250% notes due January 15, 2030 (2030 notes) and $400
million in aggregate principal amount of 5.350% notes due July 1, 2049 (2049
notes). The notes are redeemable at any time, in whole or in part, at Apache's
option, subject to a make-whole premium. The aggregate net proceeds of $989
million from the sale of the notes were used to purchase certain outstanding
notes in cash tender offers and for general corporate purposes.
Redeemable Noncontrolling Interest - Altus Preferred Unit Limited Partners On
June 12, 2019, Altus Midstream LP issued and sold Series A Cumulative Redeemable
Preferred Units for an aggregate issue price of $625 million in a private
offering exempt from the registration requirements of the Securities Act of
1933, as amended. Altus Midstream LP received approximately $611 million in cash
proceeds from the sale after deducting transaction costs and discounts to
certain purchasers. For more information, refer to   Note 13-Redeemable
Noncontrolling Interest - Altus   in the Notes to Consolidated Financial
Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K.
Uses of Cash and Cash Equivalents
Additions to Oil & Gas Property Exploration and development cash expenditures
were $1.3 billion and $2.6 billion for the years ended December 31, 2020 and
2019, respectively. The decrease in capital investment is reflective of the
Company's reduced capital program as the Company eliminated nearly all drilling
and completion activities in the U.S. by May 2020 in response to commodity price
impacts stemming from the COVID-19 pandemic. A majority of the current year
expenditures shifted from the Company's Permian Basin assets to its Egypt assets
over the second half of 2020. The Company operated an average of 12 drilling
rigs during 2020 compared to 23 drilling rigs during 2019.
Additions to Altus Gathering, Processing, and Transmission (GPT) Facilities The
Company's cash expenditures for GPT facilities totaled $28 million and $327
million during 2020 and 2019, respectively, nearly all comprising midstream
infrastructure expenditures incurred by Altus, which were substantially
completed as of December 31, 2019. Altus management believes its existing GPT
infrastructure capacity is capable of fulfilling its midstream contracts to
service Apache's production from Alpine High and any third-party customers. As
such, Altus expects capital requirements for its existing infrastructure assets
for 2021 and 2022 to be minimal.
Leasehold and Property Acquisitions During 2020 and 2019, the Company completed
leasehold and property acquisitions, primarily in the Permian Basin, for total
cash consideration of $4 million and $40 million, respectively.
Contributions to Altus Equity Method Interests Altus made contributions of $327
million and $501 million during 2020 and 2019, respectively, for equity
interests in the Equity Method Interest Pipelines. For more information
regarding the Company's equity method interests, refer to   Note 6-Equity Method
Interests   in the Notes to Consolidated Financial Statements set forth in Part
IV, Item 15 of this Annual Report on Form 10-K.
                                       46
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Acquisitions of Altus Equity Method Interests Altus made acquisitions of equity
method interests totaling $671 million during the year ended December 31, 2019.
For more information regarding the Company's equity method interests, refer to
  Note 6-Equity Method Interests   in the Notes to Consolidated Financial
Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K.
Payments on Fixed-Rate Debt On August 18, 2020, the Company closed cash tender
offers for certain outstanding notes. The Company accepted for purchase $644
million aggregate principal amount of certain notes covered by the tender
offers. The Company paid holders an aggregate $644 million reflecting principal,
aggregate discount to par of $38 million, early tender premium of $32 million,
and accrued and unpaid interest of $6 million. The Company recorded a net gain
of $2 million on extinguishment of debt, including an acceleration of
unamortized debt discount and issuance costs, in connection with the note
purchases.
During 2020, the Company purchased in the open market and canceled senior notes
issued under its indentures in an aggregate principal amount of $588 million for
an aggregate purchase price of $428 million in cash, including accrued interest
and broker fees, reflecting a discount to par of an aggregate $168 million.
These repurchases resulted in a $158 million net gain on extinguishment of debt.
The net gain includes an acceleration of related discount and debt issuance
costs. Additionally, on November 3, 2020, Apache redeemed the $183 million of
3.625% senior notes due February 1, 2021 at a redemption price equal to 100
percent of their principal amount, plus accrued and unpaid interest to the
redemption date. The repurchases were financed by borrowings under the Company's
revolving credit facility.
On June 21, 2019, the Company closed cash tender offers for certain outstanding
notes. Apache accepted for purchase $932 million aggregate principal amount of
notes for approximately $1.0 billion, which included principal, the net premium
to par, and an early tender premium totaling $28 million, as well as accrued and
unpaid interest of $14 million. The Company recorded a net loss of $75 million
on extinguishment of debt, including $7 million of unamortized debt issuance
costs and discounts, in connection with the note purchases. Additionally, on
July 1, 2019, Apache's 7.625% senior notes in original principal amount of $150
million matured and were repaid.
Dividends The Company paid $123 million and $376 million cash dividends on its
common stock for the years ended December 31, 2020 and 2019, respectively. In
the first quarter of 2020, Apache's Board of Directors approved a reduction in
the Company's quarterly dividend per share from $0.25 per share to $0.025 per
share, effective for all dividends payable after March 12, 2020.
Distributions to Noncontrolling Interests - Egypt Sinopec International
Petroleum Exploration and Production Corporation (Sinopec) holds a one-third
minority participation interest in Apache's oil and gas operations in Egypt. The
Company made cash distributions totaling $91 million and $305 million to Sinopec
during the years ended December 31, 2020 and 2019, respectively.
Distributions to Altus Preferred Units limited partners Altus Midstream LP paid
cash distributions of $23 million to its limited partners holding Preferred
Units for the year ended December 31, 2020. No cash distributions were made
during 2019. For more information regarding the Preferred Units, refer to   Note
    13    -    Redeemable Noncontrolling     Interest - Altus   in the Notes to
Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual
Report on Form 10-K.
Liquidity
The following table presents a summary of the Company's key financial indicators
as of December 31,:
                                                        2020         2019
                                                         (In millions)
Cash and cash equivalents                            $    262      $  247
Total debt - Apache                                     8,148       8,170
Total debt - Altus                                        624         396
Total equity (deficit)                                   (645)      4,465

Available committed borrowing capacity - Apache 2,944 4,000 Available committed borrowing capacity - Altus

            176         404


Cash and Cash Equivalents As of December 31, 2020, the Company had $262 million
in cash and cash equivalents, of which approximately $24 million was held by
Altus. The majority of the Company's cash is invested in highly liquid,
investment-grade instruments with maturities of three months or less at the time
of purchase.
                                       47
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Debt As of December 31, 2020, outstanding debt, which consisted of notes,
debentures, credit facility borrowings, and finance lease obligations, totaled
$8.8 billion. As of December 31, 2020, current debt included $2 million of
finance lease obligations. Apache intends to reduce debt outstanding under its
indentures from time to time.
Available Credit Facilities In March 2018, the Company entered into a revolving
credit facility with commitments totaling $4.0 billion. In March 2019, the term
of this facility was extended by one year to March 2024 (subject to Apache's
remaining one-year extension option) pursuant to Apache's exercise of an
extension option. The Company can increase commitments up to $5.0 billion by
adding new lenders or obtaining the consent of any increasing existing lenders.
The facility includes a letter of credit subfacility of up to $3.0 billion, of
which $2.08 billion was committed as of December 31, 2020. The facility is for
general corporate purposes. Letters of credit are available for security needs,
including in respect of North Sea decommissioning obligations. The facility has
no collateral requirements, is not subject to borrowing base redetermination,
and has no drawdown restrictions or prepayment obligations in the event of a
decline in credit ratings.
As of December 31, 2020, there were $150 million of borrowings and an aggregate
£633 million and $40 million in letters of credit outstanding under this
facility. As of December 31, 2019, there were no borrowings or letters of credit
outstanding under this facility. The £633 million in outstanding letters of
credit were issued to support North Sea decommissioning obligations, the terms
of which required such support after Standard & Poor's reduced the Company's
credit rating from BBB to BB+ on March 26, 2020.
At Apache's option, the interest rate per annum for borrowings under the 2018
facility is either a base rate, as defined, plus a margin, or the London
Inter-bank Offered Rate (LIBOR), plus a margin. Apache also pays quarterly a
facility fee at a per annum rate on total commitments. The margins and the
facility fee vary based upon the Company's senior long-term debt rating. At
December 31, 2020, the base rate margin was 0.5 percent, the LIBOR margin was
1.50 percent, and the facility fee was 0.25 percent. A commission is payable
quarterly to lenders on the face amount of each outstanding letter of credit at
a per annum rate equal to the LIBOR margin then in effect. Customary letter of
credit fronting fees and other charges are payable to issuing banks.
The financial covenants of the credit facility require Apache to maintain an
adjusted debt-to-capital ratio of not greater than 60 percent at the end of any
fiscal quarter. For purposes of this calculation, capital excludes the effects
of non-cash write-downs, impairments, and related charges occurring after June
30, 2015. At December 31, 2020, Apache's debt-to-capital ratio as calculated
under the credit facility was 32 percent. The 2018 facility's negative covenants
restrict the ability of Apache and its subsidiaries to create liens securing
debt on their hydrocarbon-related assets, with exceptions for liens typically
arising in the oil and gas industry; liens securing debt incurred to finance the
acquisition, construction, improvement, or capital lease of assets, provided
that such debt, when incurred, does not exceed the subject purchase price and
costs, as applicable, and related expenses; liens on subsidiary assets located
outside of the United States and Canada; and liens arising as a matter of law,
such as tax and mechanics' liens. Apache also may incur liens on assets if debt
secured thereby does not exceed 15 percent of Apache's consolidated net tangible
assets, or approximately $1.7 billion as of December 31, 2020. Negative
covenants also restrict Apache's ability to merge with another entity unless it
is the surviving entity, dispose of substantially all of its assets, and
guarantee debt of non-consolidated entities in excess of the stated threshold.
In November 2018, Altus Midstream LP entered into a revolving credit facility
for general corporate purposes that matures in November 2023 (subject to Altus
Midstream LP's two, one-year extension options). The agreement for this
facility, as amended, provides aggregate commitments from a syndicate of banks
of $800 million. All aggregate commitments include a letter of credit
subfacility of up to $100 million and a swingline loan subfacility of up to $100
million. Altus Midstream LP may increase commitments up to an aggregate $1.5
billion by adding new lenders or obtaining the consent of any increasing
existing lenders. As of December 31, 2020 and 2019, there were $624 million and
$396 million, respectively, of borrowings and no letters of credit outstanding
under this facility.
                                       48
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The agreement for Altus Midstream LP's credit facility, as amended, restricts
distributions in respect of capital to Apache and other unit holders in certain
circumstances. Unless the Leverage Ratio is less than or equal to 4.00:1.00, the
agreement limits such distributions to $30 million per calendar year until
either (i) the consolidated net income of Altus Midstream LP and its restricted
subsidiaries, as adjusted pursuant to the agreement, for three consecutive
calendar months equals or exceeds $350.0 million on an annualized basis or (ii)
Altus Midstream LP has a specified senior long-term debt rating; in addition,
before the occurrence of one of those two events, the Leverage Ratio must be
less than or equal to 5.00:1.00. In no event can any distribution be made that
would, after giving effect to it on a pro forma basis, result in a Leverage
Ratio greater than (i) 5.00:1.00 or (ii) for a specified period after a
qualifying acquisition, 5.50:1.00. The Leverage Ratio is the ratio of (1) the
consolidated indebtedness of Altus Midstream LP and its restricted subsidiaries
to (2) EBITDA (as defined in the agreement) of Altus Midstream LP and its
restricted subsidiaries for the 12-month period ending immediately before the
determination date. The Leverage Ratio as of December 31, 2020 was less than
4.00:1.00.
The terms of Altus Midstream LP's Series A Cumulative Redeemable Preferred Units
also contain certain restrictions on distributions in respect of capital,
including the common units held by Apache and any other units that rank junior
to the Preferred Units with respect to distributions or distributions upon
liquidation. Refer to   Note 13-Redeemable Noncontrolling Interest - Altus

set


forth in Part IV, Item 15 of this Annual Report on Form 10-K for further
information. In addition, the amount of any cash distributions to Altus
Midstream LP by any entity in which it has an interest accounted for by the
equity method is subject to such entity's compliance with the terms of any debt
or other agreements by which it may be bound, which in turn may impact the
amount of funds available for distribution by Altus Midstream LP to its
partners.
The Altus Midstream LP credit facility is unsecured and is not guaranteed by
Apache or any of Apache's other subsidiaries.
There are no clauses in either the agreement for Apache's 2018 credit facility
or for Altus Midstream LP's 2018 credit facility that permit the lenders to
accelerate payments or refuse to lend based on unspecified material adverse
changes. These agreements do not have drawdown restrictions or
prepayment  obligations in the event of a decline in credit ratings. However,
each agreement allows the lenders to accelerate payment maturity and terminate
lending and issuance commitments for nonpayment and other breaches, and if a
borrower or any of its subsidiaries defaults on other indebtedness in excess of
the stated threshold, is insolvent, or has any unpaid, non-appealable judgment
against it for payment of money in excess of the stated threshold. Lenders may
also accelerate payment maturity and terminate lending and issuance commitments
under the applicable agreement if Apache or Altus Midstream LP, as applicable,
undergoes a specified change in control or any borrower has specified pension
plan liabilities in excess of the stated threshold. Each of Apache and Altus
Midstream LP was in compliance with the terms of its 2018 credit facility as of
December 31, 2020.
There is no assurance of the terms upon which potential lenders under future
credit facilities will make loans or other extensions of credit available to
Apache or its subsidiaries or the composition of such lenders.
There is no assurance that the financial condition of banks with lending
commitments to Apache or Altus Midstream LP will not deteriorate. We closely
monitor the ratings of the banks in our bank groups. Having large bank groups
allows the Company to mitigate the potential impact of any bank's failure to
honor its lending commitment.
Commercial Paper Program Apache's $3.5 billion commercial paper program, which
is subject to market availability, facilitates Apache borrowing funds for up to
270 days. As a result of downgrades in Apache's credit ratings during 2020, the
Company does not expect that its commercial paper program will be cost
competitive with its other financing alternatives and does not anticipate using
it under such circumstances. As of December 31, 2020 and 2019, the Company had
no commercial paper outstanding.
                                       49
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Contractual Obligations
The following table summarizes the Company's contractual obligations as of
December 31, 2020. For additional information regarding these obligations, refer
to   Note 9-Debt and Financing Costs   and   Note 11-Commitments and
Contingencies   in the Notes to Consolidated Financial Statements set forth in
Part IV, Item 15 of this Annual Report on Form 10-K.
                                                                                   On-Balance Sheet                                                     

Off-Balance Sheet


                                Debt, at           Apache Credit           Altus Credit            Interest             Finance              Operating               Purchase
Obligations by Period          Face Value           Facility(1)             Facility(1)            Payments            Leases(2)             Leases(3)            Obligations(4)           Total(5)
                                                                                                           (In millions)
2021                          $       -          $            -          $            -          $     415          $          3          $        120          $            236          $    774
2022                                213                       -                       -                397                     3                    70                       203               886
2023                                123                       -                     624                392                     3                    33                       203             1,378
2024                                  -                     150                       -                391                     4                    27                       160               732
2025                                500                       -                       -                391                     4                     7                       159             1,061
Thereafter                        7,216                       -                       -              4,404                    29                    25                       600            12,274
Total                         $   8,052          $          150          $          624          $   6,390          $         46          $        282          $          1,561          $ 17,105


(1)Includes outstanding principal amounts at December 31, 2020. This table does
not include future commitment fees, interest expense, or other fees on the
Company's credit facilities because they are floating rate instruments, and
management cannot determine with accuracy the timing of future loan advances,
repayments, or future interest rates to be charged.
(2)Amounts represent the Company's finance lease obligation related to the
Company's Midland, Texas regional office building.
(3)Amounts represent future lease payments associated with oil and gas
operations inclusive of amounts billable to partners and other working interest
owners. Such payments may be capitalized as a component of oil and gas
properties and subsequently depreciated, impaired, or written off as exploration
expense.
(4)Amounts represent any agreements to purchase goods or services that are
enforceable and legally binding and that specify all significant terms. These
include minimum commitments associated with take-or-pay contracts, NGL
processing agreements, drilling work program commitments, and agreements to
secure capacity rights on third-party pipelines. Amounts exclude certain product
purchase obligations related to marketing and trading activities for which there
are no minimum purchase requirements or the amounts are not fixed or
determinable. Total costs incurred under take-or-pay and throughput obligations
were $120 million, $111 million, and $132 million for 2020, 2019, and 2018,
respectively.
(5)This table does not include the Company's liability for dismantlement,
abandonment, and restoration costs of oil and gas properties or pension or
postretirement benefit obligations. For additional information regarding these
liabilities, please see   Notes 8    -    Asset     Retirement     Obligation
and   Note     12    -    Retirement and Deferred Compensation Plans  ,
respectively, in the Notes to Consolidated Financial Statements set forth in
Part IV, Item 15 of this Annual Report on Form 10-K.
Apache is also subject to various contingent obligations that become payable
only if certain events or rulings were to occur. The inherent uncertainty
surrounding the timing of and monetary impact associated with these events or
rulings prevents any meaningful accurate measurement, which is necessary to
assess settlements resulting from litigation. Apache's management believes that
it has adequately reserved for its contingent obligations, including
approximately $2 million for environmental remediation and approximately $70
million for various contingent legal liabilities. For a detailed discussion of
the Company's lease obligations, purchase obligations, environmental and legal
contingencies, and other commitments, please see   Note 11-Commitments and
Contingencies   and   Note 12    -    Ret    irement and Deferred
Com    pens    ation Plans   in the Notes to Consolidated Financial Statements
set forth in Part IV, Item 15 of this Annual Report on Form 10-K.
As further described above under "Capital and Operational Outlook," Altus
Midstream LP and/or its subsidiaries have exercised four of the five Pipeline
Options to acquire equity interests in the Equity Method Interest Pipelines. The
fifth Pipeline Option to acquire an equity interest in a separate intra-basin
NGL pipeline was not exercised and expired on March 2, 2020. Following the
exercise of each Pipeline Option, Altus Midstream LP and/or its subsidiaries may
be required to fund future capital expenditures for its equity interest share in
the development of the applicable pipeline. The Company estimates that Altus,
based on its equity interests in each pipeline, will incur approximately $30
million of additional capital contributions for its equity interests during
2021.
                                       50
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With respect to oil and gas operations in the Gulf of Mexico, the Bureau of
Ocean Energy Management (BOEM) issued a Notice to Lessees (NTL No. 2016-N01)
significantly revising the obligations of companies operating in the Gulf of
Mexico to provide supplemental assurances of performance with respect to
plugging, abandonment, and decommissioning obligations associated with wells,
platforms, structures, and facilities located upon or used in connection with
such companies' oil and gas leases. While the NTL was paused in mid-2017 and is
currently listed on BOEM's website as "rescinded," if reinstated, the NTL will
likely require that Apache provide additional security to BOEM with respect to
plugging, abandonment, and decommissioning obligations relating to Apache's
current ownership interests in various Gulf of Mexico leases. The Company is
working closely with BOEM to make arrangements for the provision of such
additional required security, if such security becomes necessary under the
NTL. Additionally, the Company is not able to predict the effect that these
changes might have on counterparties to which Apache has sold Gulf of Mexico
assets or with whom Apache has joint ownership. Such changes could cause the
bonding obligations of such parties to increase substantially, thereby causing a
significant impact on the counterparties' solvency and ability to continue as a
going concern.
Potential Asset Retirement Obligations
The Company has potential exposure to future obligations related to divested
properties. Apache has divested various leases, wells, and facilities located in
the Gulf of Mexico where the purchasers typically assume all obligations to
plug, abandon, and decommission the associated wells, structures, and facilities
acquired. One or more of the counterparties in these transactions could, either
as a result of the severe decline in oil and natural gas prices or other factors
related to the historical or future operations of their respective businesses,
face financial problems that may have a significant impact on their solvency and
ability to continue as a going concern. If a purchaser of our Gulf of Mexico
assets becomes the subject of a case or proceeding under relevant insolvency
laws or otherwise fails to perform required abandonment obligations, Apache
could be required to perform such actions under applicable federal laws and
regulations. In such event, Apache may be forced to use available cash to cover
the costs of such liabilities and obligations should they arise.
In 2013, the Company sold its Gulf of Mexico Shelf operations and properties
(Transferred Assets) to Fieldwood Energy LLC (Fieldwood). Under the terms of the
purchase agreement, the Company received cash consideration of $3.75 billion and
Fieldwood assumed $1.5 billion of discounted asset abandonment liabilities as of
the disposition date. In respect of such abandonment liabilities, Fieldwood
posted letters of credit in favor of the Company (Letters of Credit) and
established a trust account (Trust A), which is funded by a 10 percent net
profits interest depending on future oil prices and of which the Company is the
beneficiary. On February 14, 2018, Fieldwood filed for protection under Chapter
11 of the U.S. Bankruptcy Code. In connection with the 2018 bankruptcy,
Fieldwood confirmed a plan under which the Company agreed, inter alia, to accept
bonds in exchange for certain of the Letters of Credit. Currently, the Company
holds two bonds (Bonds) and the remaining Letters of Credit to secure
Fieldwood's asset retirement obligations (AROs) on the Transferred Assets as and
when such abandonment and decommissioning obligations are required to be
performed over the remaining life of the Transferred Assets.
On August 3, 2020, Fieldwood again filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. Fieldwood has submitted a plan of reorganization, and the
Company has been engaged in discussions with Fieldwood and other interested
parties regarding such plan. If approved by the bankruptcy court, the submitted
plan would separate the Transferred Assets into a standalone company, and
proceeds of production of the Transferred Assets will be used for the AROs. If
the proceeds of production are insufficient for such AROs, then Apache expects
that it may be required by the relevant governmental authorities to perform such
AROs, in which case it will apply the Bonds, remaining Letters of Credit, and
Trust A to pay for the AROs. In addition, after such sources have been
exhausted, Apache has agreed to provide a standby loan of up to $400 million for
the new company to perform decommissioning, with such standby loan secured by a
first and prior lien on the Transferred Assets. If the foregoing is
insufficient, the Company may be forced to use available cash to cover any
additional costs it incurs for performing such AROs.
Insurance Program
Apache maintains insurance policies that include coverage for physical damage to
its assets, general liabilities, workers' compensation, employers' liability,
sudden and accidental pollution, and other risks. The Company's insurance
coverage is subject to deductibles or retentions that it must satisfy prior to
recovering on insurance. Additionally, the Company's insurance is subject to
policy exclusions and limitations. There is no assurance that insurance will
adequately protect Apache against liability from all potential consequences and
damages. Further, the Company does not have coverage in place for a variety of
other risks including Gulf of Mexico named windstorm and business interruption.
                                       51
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Current insurance policies covering physical damage to the Company's assets
provide up to $1 billion in coverage per occurrence. These policies also provide
sudden and accidental pollution coverage. The Company's current insurance
policies covering general liabilities provide $500 million in coverage, scaled
to Apache's interest. Service agreements, including drilling contracts,
generally indemnify Apache for injuries and death of the service provider's
employees as well as subcontractors hired by the service provider.
Apache purchases multi-year political risk insurance from U.S. International
Development Finance Corporation (DFC), successor to Overseas Private Investment
Corporation (OPIC), and highly-rated insurers covering a portion of its
investments in Egypt for losses arising from confiscation, nationalization, and
expropriation risks. The Islamic Corporation for the Insurance of Investment and
Export Credit (ICIEC, an agency of the Islamic Development Bank) reinsures DFC.
In the aggregate, these insurance policies provide up to $750 million of
coverage, subject to policy terms and conditions and a retention of
approximately $500 million.
Apache has an additional insurance policy with DFC, which, subject to policy
terms and conditions, provides up to $300 million of coverage through 2024 for
losses arising from (1) non-payment by EGPC of arbitral awards covering amounts
owed Apache on past due invoices and (2) expropriation of exportable petroleum
in the event that actions taken by the government of Egypt prevent Apache from
exporting our share of production. The Multilateral Investment Guarantee Agency
(MIGA), a member of the World Bank Group, provides $150 million in reinsurance
to DFC.
Future insurance coverage for the Company's industry could increase in cost and
may include higher deductibles or retentions. In addition, some forms of
insurance may become unavailable or unavailable on terms economically
acceptable.
Critical Accounting Estimates
Apache prepares its financial statements and the accompanying notes in
conformity with accounting principles generally accepted in the United States of
America, which require management to make estimates and assumptions about future
events that affect the reported amounts in the financial statements and the
accompanying notes. Apache identifies certain accounting policies involving
estimation as critical based on, among other things, their impact on the
portrayal of Apache's financial condition, results of operations, or liquidity
and the degree of difficulty, subjectivity, and complexity in their deployment.
Critical accounting estimates cover accounting matters that are inherently
uncertain because the future resolution of such matters is unknown. Management
routinely discusses the development, selection, and disclosure of each of the
Company's critical accounting estimates. The following is a discussion of
Apache's most critical accounting estimates.
Reserves Estimates
Proved oil and gas reserves are the estimated quantities of natural gas, crude
oil, condensate, and NGLs that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing conditions, operating conditions, and government regulations.
Proved undeveloped reserves include those reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Undeveloped reserves
may be classified as proved reserves on undrilled acreage directly offsetting
development areas that are reasonably certain of production when drilled, or
where reliable technology provides reasonable certainty of economic
producibility. Undrilled locations may be classified as having undeveloped
reserves only if a development plan has been adopted indicating that they are
scheduled to be drilled within five years, unless specific circumstances justify
a longer time.
Despite the inherent imprecision in these engineering estimates, the Company's
reserves are used throughout its financial statements. For example, since the
Company uses the units-of-production method to amortize its oil and gas
properties, the quantity of reserves could significantly impact DD&A expense. A
material adverse change in the estimated volumes of reserves could result in
property impairments. Finally, these reserves are the basis for Apache's
supplemental oil and gas disclosures. For more information regarding Apache's
supplemental oil and gas disclosures, Refer to   Note
1    8    -    Supplem    ental Oil and Gas     Disclosures
  (Unaudit    ed    )   in the Notes to Consolidated Financial Statements set
forth in Part IV, Item 15 of this Annual Report on Form 10-K.
Reserves are calculated using an unweighted arithmetic average of commodity
prices in effect on the first day of each of the previous 12 months, held flat
for the life of the production, except where prices are defined by contractual
arrangements. Operating costs, production and ad valorem taxes and future
development costs are based on current costs with no escalation.
Apache has elected not to disclose probable and possible reserves or reserve
estimates in this filing.
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Oil and Gas Exploration Costs
Apache accounts for its exploration and production activities using the
successful efforts method of accounting. Costs of acquiring unproved and proved
oil and gas leasehold acreage are capitalized. Costs of drilling and equipping
productive wells, including development dry holes, and related production
facilities are also capitalized. Oil and gas exploration costs, other than the
costs of drilling exploratory wells, are charged to expense as incurred. Costs
associated with drilling an exploratory well are initially capitalized, or
suspended, pending a determination as to whether proved reserves have been
found. On a quarterly basis, management reviews the status of all suspended
exploratory well costs in light of ongoing exploration activities and determines
whether the Company is making sufficient progress in its ongoing exploration and
appraisal efforts or, in the case of discoveries requiring government
sanctioning, whether development negotiations are underway and proceeding as
planned. If management determines that future appraisal drilling or development
activities are unlikely to occur, associated suspended exploratory well costs
are recorded as dry hole expense and reported in exploration expense in the
statement of consolidated operations. Otherwise, the costs of exploratory wells
remain capitalized.
Long-Lived Asset Impairments
Long-lived assets used in operations, including proved oil and gas properties
and GPT assets, are assessed for impairment whenever changes in facts and
circumstances indicate a possible significant deterioration in future cash flows
expected to be generated by an asset. Individual assets are grouped for
impairment purposes based on a judgmental assessment of the lowest level for
which there are identifiable cash flows that are largely independent of the cash
flows of other groups of assets. If there is an indication that the carrying
amount of an asset group may not be recovered, the asset is assessed by
management through an established process in which changes to significant
assumptions such as prices, volumes, and future development plans are reviewed.
If, upon review, the sum of the undiscounted pre-tax cash flows is less than the
carrying value of the asset group, the carrying value is written down to
estimated fair value. Because there usually is a lack of quoted market prices
for long-lived assets, the fair value of impaired assets is assessed by
management using the income approach.
Under the income approach, the fair value of each asset group is estimated based
on the present value of expected future cash flows. The income approach is
dependent on a number of factors including estimates of forecasted revenue and
operating costs, proved reserves, the success of future exploration for and
development of unproved reserves, expected throughput volumes for GPT assets,
discount rates, and other variables. Key assumptions used in developing a
discounted cash flow model described above include estimated quantities of crude
oil and natural gas reserves; estimates of market prices considering forward
commodity price curves as of the measurement date; and estimates of operating,
administrative, and capital costs adjusted for inflation. The Company discounts
the resulting future cash flows using a discount rate believed to be consistent
with those applied by market participants.
To assess the reasonableness of our fair value estimate, when available
management uses a market approach to compare the fair value to similar assets.
This requires management to make certain judgments about the selection of
comparable assets, recent comparable asset transactions, and transaction
premiums.
Although the fair value estimate of each asset group is based on assumptions
believed to be reasonable, those assumptions are inherently unpredictable and
uncertain, and actual results could differ from the estimate. Negative revisions
of estimated reserves quantities, increases in future cost estimates,
divestiture of a significant component of the asset group, or sustained
decreases in crude oil or natural gas prices could lead to a reduction in
expected future cash flows and possibly an additional impairment of long-lived
assets in future periods.
Over the past several years, the Company has experienced substantial volatility
in commodity prices, which impacted its future development plans and operating
cash flows. As such, material impairments of certain proved oil and gas
properties and gathering, processing, and transmission facilities were recorded
in 2020, 2019, and 2018. For discussion of these impairments, see "Fair Value
Measurements" of   Note 1-Summary of Significant Accounting Policies   in the
Notes to Consolidated Financial Statements.
Asset Retirement Obligation (ARO)
The Company has significant obligations to remove tangible equipment and restore
land or seabed at the end of oil and gas production operations. Apache's removal
and restoration obligations are primarily associated with plugging and
abandoning wells and removing and disposing of offshore oil and gas platforms in
the North Sea and Gulf of Mexico. Estimating the future restoration and removal
costs is difficult and requires management to make estimates and judgments.
Asset removal technologies and costs are constantly changing, as are regulatory,
political, environmental, safety, and public relations considerations.
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ARO associated with retiring tangible long-lived assets is recognized as a
liability in the period in which the legal obligation is incurred and becomes
determinable. The liability is offset by a corresponding increase in the
underlying asset. The ARO liability reflects the estimated present value of the
amount of dismantlement, removal, site reclamation, and similar activities
associated with Apache's oil and gas properties and other long-lived assets. The
Company utilizes current retirement costs to estimate the expected cash outflows
for retirement obligations. Inherent in the present value calculation are
numerous assumptions and judgments including the ultimate settlement amounts,
inflation factors, credit-adjusted discount rates, timing of settlement, and
changes in the legal, regulatory, environmental, and political environments.
Accretion expense is recognized over time as the discounted liability is
accreted to its expected settlement value.
Income Taxes
The Company's oil and gas exploration and production operations are subject to
taxation on income in numerous jurisdictions worldwide. The Company records
deferred tax assets and liabilities to account for the expected future tax
consequences of events that have been recognized in its financial statements and
tax returns. Management routinely assesses the ability to realize the Company's
deferred tax assets. If management concludes that it is more likely than not
that some portion or all of the deferred tax assets will not be realized under
accounting standards, the tax asset would be reduced by a valuation allowance.
Numerous judgments and assumptions are inherent in the determination of future
taxable income, including factors such as future operating conditions
(particularly as related to prevailing oil and gas prices).
The Company regularly assesses and, if required, establishes accruals for
uncertain tax positions that could result from assessments of additional tax by
taxing jurisdictions in countries where the Company operates. The Company
recognizes a tax benefit from an uncertain tax position when it is more likely
than not that the position will be sustained upon examination, based on the
technical merits of the position. These accruals for uncertain tax positions are
subject to a significant amount of judgment and are reviewed and adjusted on a
periodic basis in light of changing facts and circumstances considering the
progress of ongoing tax audits, case law, and any new legislation. The Company
believes that its accruals for uncertain tax positions are adequate in relation
to the potential for any additional tax assessments.

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